By: Martha Stokes C.M.T.
All too often retail traders are either chasing stocks that are already running, or having a knee jerk reaction to news, events, or sudden price shifts.
To be consistently successful a retail trader needs to learn to anticipate price action BEFORE price actually moves. That means setting aside the notion that price indicators are the most important indicators to use.
In today’s automated market with Dark Pools, High Frequency Traders and other automated orders triggered by computers rather than humans, patterns form that volume and accumulation/distribution indicators expose that are not visible in pure price and time indicators.
The stock chart below is a good example. DIS has been in a moderate uptrend, very sustainable for many months. This actually was a wonderful position hold stock rather than a swing trade due to how price behaved.
Chart 1
Price looks like it could continue up indefinitely and price indicators are still confirming upside action. However, there are subtle signals in volume and accumulation/distribution indicators that warn before price starts to weaken, that the upside is moving on smaller lot activity versus giant fund accumulation. Whenever this occurs entering the stock is higher risk, because the smaller lots have limited buying power and their buying is often at highs and speculative in nature. That triggers HFTs and profit taking which can result in a steep retracement or correction. The weakness in volume based indicators are rounding tops, lower highs, and weakening volume patterns.
The short term trend has weakened and is moving sideways, as volume entering the stock is now predominantly smaller lots. Large lot activity subsided a while ago and TTQA is exposing smaller funds buying.
Understanding who is in control of price will help you choose better entries and avoid high risk trades. This stock is shifting sideways due to a weakening of volume and accumulation/distribution patterns. Quiet accumulation ceased some time ago.
The risk now is from profit taking by larger lots who entered at the bottom. As smaller funds rush to buy due to sell side market participant recommendations, the dark pools may decide to take some profits.
Being able to anticipate weeks ahead of price shifts helps reduce whipsaw trades, weaker entries, and lower profits.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
©2012 Decisions Unlimited, Inc.
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12 comments:
Thank you so much for sharing all this wonderful information It is so appreciated!! You have good humor in your blogs. So much helpful and easy to read!
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Smaller lot buying had overtaken large institutional MapQuest Route Planner activity, suggesting higher risk due to reduced buying power, profit-taking, and potential for a correction.
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Martha Stokes makes an excellent point about the importance of volume and accumulation/distribution indicators in today’s automated market. As highlighted by SugarSugar2, retail traders often overlook these subtle signals, focusing solely on price action. The example of DIS, discussed by Sand Tetris, shows how weakening volume patterns can signal a shift in trend. Understanding who controls the price, as emphasized by Narrow One, is crucial for better trade entries. Thanks to insights from Football Bros and Basketball Bros, it’s clear that anticipating these shifts can significantly reduce risks and improve outcomes. Great analysis!
Wow, this is super insightful! I always focus too much on price. Definitely gonna start paying more attention to volume and accumulation/distribution. Thanks for the heads up! Makes total sense!
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Martha Stokes effectively illustrates how volume and accumulation/distribution can predict market shifts, offering valuable advice for traders. Great read! Let me share an interesting animation generator, I hope it's useful for all of you.
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